Oakland pot advocate steps down

OAKLAND After federal raid, others will carry on businesses

Published 4:00 am, Saturday, April 7, 2012

Richard Lee at a conference about the changing the laws about the use of Marijuana at the Cathedral Hill Hotel in San Francisco in 2005.

Richard Lee at a conference about the changing the laws about the use of Marijuana at the Cathedral Hill Hotel in San Francisco in 2005.

Photo: John Storey, The Chronicle

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Richard Lee, who founded Oaksterdam University in 2007 sits in the horticulture lab on the campus, Thursday, May 20, 2010, in Oakland, Calif.

Richard Lee, who founded Oaksterdam University in 2007 sits in the horticulture lab on the campus, Thursday, May 20, 2010, in Oakland, Calif.

Photo: Lacy Atkins, The Chronicle

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Richard Lee, president of Oaksterdam University, monitors the growth of a marijuana crop at the school's indoor growing lab in Oakland, Calif., on Friday, April 10, 2009.

Richard Lee, president of Oaksterdam University, monitors the growth of a marijuana crop at the school's indoor growing lab in Oakland, Calif., on Friday, April 10, 2009.

Photo: Paul Chinn, The Chronicle

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FILE - In this Feb. 16, 2008 file photo, Richard Lee, president of Oaksterdam University, sits in front of the school's gift shop across the street from the university building in Oakland, Calif. Lee, the founder of a Northern California medical marijuana training school raided by federal agents, says he's giving up ownership of his downtown Oakland-based pot businesses, including the school. (AP Photo/Dino Vournas, File) less

FILE - In this Feb. 16, 2008 file photo, Richard Lee, president of Oaksterdam University, sits in front of the school's gift shop across the street from the university building in Oakland, Calif. Lee, the ... more

Photo: Dino Vournas, Associated Press

Image 5 of 5

FILE - In this Wednesday, May 26, 2010 file photo, Richard Lee, president of Oaksterdam University, poses for a photograph at the school's gift shop in Oakland, Calif. Lee, the founder of a Northern California medical marijuana training school raided by federal agents, says he's giving up ownership of his downtown Oakland-based pot businesses, including the school. (AP Photo/Jeff Chiu) less

FILE - In this Wednesday, May 26, 2010 file photo, Richard Lee, president of Oaksterdam University, poses for a photograph at the school's gift shop in Oakland, Calif. Lee, the founder of a Northern California ... more

Photo: Jeff Chiu, Associated Press

Oakland pot advocate steps down

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Richard Lee, the state's most influential advocate for marijuana legalization, said Friday that he is relinquishing control of his pot dispensary and medical marijuana trade school in the aftermath of Monday's federal raid on the school and distribution center.

"It's the best thing to do with my legal battle," Lee said, adding that he would keep his ownership in the various businesses. "I've been doing this for 20 years, so I kind of feel like I've done my time and it's time for others to take over."

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Despite his departure, Lee said, the business will carry on. Classes will continue on Saturday and throughout the rest of the month at Oaksterdam University, which will be run at a different location by Dale Sky Jones, the school's executive chancellor.

Workers laid off

On Thursday, all of the employees at Oaksterdam and Lee's Coffeeshop Blue Sky dispensary were formally laid off because there was no money left to pay them, Lee said.

"Pretty much, I was put out of business on Monday," he said. The next stage will involve relying on believers in the cause, particularly with the dispensary.

"A brave group of volunteers are going to open it," he said. "I see the volunteers as temporary to help get things going. Hopefully, they can get good jobs that pay health insurance and keep things going."

Lee has been the state's most prominent advocate for the regulation and taxation of marijuana. In 2010, he fought for and helped bankroll Proposition 19, which would have legalized pot use among adults in California regardless of medical necessity. It failed, but garnered 46 percent of the vote - the highest ever for any general pot-legalization proposal in the country.

In Oakland, Lee pushed for successful ballot measures that made marijuana prosecutions the lowest priority and established the nation's first tax on cannabis businesses. Lee believed that with taxation would come legalization.

"The government seems to want its cake and eat it too," Lee said. "They want to tax it, so they need to regulate it. But they shouldn't be keeping it illegal and taxing us."

There was, he said, little he could do to overcome the disparity between state and federal marijuana laws.

"We've tried our best, but as you know, there are many conflicting laws and rulings," Lee said.

Deducting expenses

Lee believes that he is a target of the IRS because of section 280-E of the tax code, which does not allow medical marijuana dispensaries - or any organization that the federal government defines as trafficking in controlled substances - to deduct many expenses.

Lee said his tax rate without deductions is roughly double what it would be with deductions. Despite their hefty collections, he said, the IRS began scrutinizing his businesses by looking at his 2010 returns. He said he agreed to a payment plan, but then they told him they were also going to audit his business going back to 2007.

The huge payments crippled his business, Lee said.

"We paid them as much as we could," Lee said. "We were losing more money every day because there was more and more IRS debt being loaded on."

The prohibition of tax deductions in code section 280-E is a common tool used by the federal government to shut down dispensaries, said Matt Kumin, a San Francisco attorney who in 2007 helped litigate the first such case involving medical marijuana.

Kumin said that at least seven of San Francisco's 25 dispensaries have been or are being audited on those grounds. "It's way out of proportion for audits in any industry," he said.

Harborside Health Center, another Oakland dispensary, is currently in court with the IRS over the issue. If they lose, center officials said, they will be forced out of business.

Asked why he didn't go to court instead of agreeing to the IRS' terms, Lee said, "I was advised that this was a better way to keep things open."

Officials with the IRS declined comment.

Kumin said dispensaries can make it if they limit and segregate the property and employees directly involved in buying or selling cannabis.

"You can actually survive this, if you operate correctly," Kumin said. "It can be a tax hit ... but it doesn't have to be fatal."

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